UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re ENRON CORP. SECURITIES ) Civil Action No. H-01-3624 LITIGATION ) (Consolidated) This document relates to: CLASS ACTION MARK NEWBY, et al., individually and UNITED STATES On behalf of all others similarly situated, SOUCTOHUERRTNS DISTRICT OF TEXAS FILED Plaintiffs, V. ) MAY 1 4 ) 2008 ENRON CORP., et al., ) MICHAEL N. 6W 91 of cuRT Defendants. ) THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, et al., individually and on behalf Of all others similarly situated, Plaintiffs, V. KENNETH LAY, et al., Defendants. SUPPLEMENTAL OBJECTIONS TO FEE PETITION Class Members George S. Bishop, Jill R. Bishop, Lon Wilkins and Betty Wilkens ("Objectors") hereby file this supplemental objection to Class Counsel's request for attorney's fees, responding to the fling of their time records, pursuant to this Court's April 16, 2008 Order. While two weeks is not suffcient time to adequately review the volume of records that were filed with the Court on April 30, 2008, a cursory review of those records, and in particular the yearly summaries of lodestar by the Coughlin Stoia frm, permit the following observations. Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bThis Court's announcement in its Order that it will employ the lodestar method as a cross-check on the fee negotiated by the Regents signals a sensible attempt to determine whether the chosen methodology makes a difference. In other words, does the fee that results from application of traditional and established Fifh Circuit fee jurisprudence differ from the one that Regents negotiated with Class Counsel at the beginning of this case? If it does not, then this Court need not resolve the issue (one of frst impression in this Circuit) of whether the PSLRA displaces prior fee jurisprudence and mandates the use of the percentage method and deference to the ex ante fee agreement.) If, on the other hand, the fee that would result from the application of Fifh Circuit lodestar methodology differs substantially from the percentage fee agreed to by the Regents, then this Court will have to resolve that issue, since it will make an enormous difference in the amount of attorney's fees that may be awarded. The mandatory Fifh Circuit methodology was most recently confrmed in In re: High Sulfur Content Gasoline Prods. Liab. Litig, 517 F.3d 220 (5th Cir. 2008). The timing of this decision was fortuitous for this case, since Class Counsel and their experts had argued in their fee memorandum and affdavits that the passage of time had somehow eroded this Circuit's adherence to Strong v. Bellsouth Telecomms., Inc., 137 F.3d 844 (5th Cir. 1998) and other earlier cases that had clearly adopted the lodestar methodology as the only permissible way of calculating attorney's fees in this Circuit. 1At least one federal district court has held that the PSLRA does not mandate use of the percentage-ofrecovery method for calculating fees in securities actions, and that the provision of the PSLRA that limits attorney's fees to "a reasonable percentage of the amount of any damages... actually paid to the class" is simply that, a limitation, and not a prescription for the methodology to be used in computing fees. In re Microstrategy, Inc. Sec. Litig., 172 F. Supp.2d 778, 785 (E.D. Va. 2001). Accord In re Cardinal Health Inc. Sec. Litig., 528 F. Supp. 2d 752, 760-61 (S.D. Ohio 2007) (neither Sixth Circuit nor PSLRA has established controlling rule for calculating attorney's fees in PSLRA cases). As far as the Objectors have been able to determine, no federal court of appeals has yet resolved this issue. 2 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bIn High Sulfur, the Fifh Circuit once again affrmed that the only proper method for determining attorney's fees in this Circuit begins with a lodestar calculation: This circuit requires district courts to use the "lodestar method" to "assess attorney's fees in class action suits." Strong, 137 F.3d at 850. The district court must first determine the reasonable number of hours expended on the litigation and the reasonable hourly rate for the participating attorney. Id. The lodestar is then computed by multiplying the number of hours reasonably expended by the reasonable hourly rate. Id. The district court may adjust the lodestar upward or downward afer a review of the twelve factors set forth in Johnson. Forbush, 98 F.3d at 821. Afer the court calculates the lodestar, it must scrutinize the fee award under the Johnson factors and not merely "ratify a pre-arranged compact." Piambino v. Bailey, 610 F.2d 1306, 1328 (5t Cir. 1980)... High Sulfur, 517 F.3d at 228.2 The Objectors cannot imagine a clearer rejection of the fee methodology urged by Class Counsel in this case. By asking this Court to adopt and defer to the fee agreement negotiated by Regents and Lead Counsel at the inception of this case, they are in effect asking it to "ratify a pre-arranged compact" that would grossly overcompensate Class Counsel under the twelve Johnson factors. Class Counsel's time records illustrate the enormous difference that application of lodestar principles would have on the amount of a reasonable fee. The bulk of the settlements in this case were achieved by mid-2005. The Citibank, JP Morgan and CIBC settlements, totaling $6.6 billion, were announced in June and August of 2005. As of the summer of 2005, the risk associated with this case, i.e. the risk of non-recovery, disappeared. Along with it went the risk that Class Counsel would not be paid for every 2 At the fairness hearing, Class Counsel argued that High Sulfur is limited to its facts and only applies to the issue of fee allocation among diferent law frms, rather than setting the overall amount of a fee. That is utter nonsense. Nowhere in the above quotation does the Fifh Circuit refer to allocation. Indeed, the quoted excerpt appears at the beginning of the "Discussion" section of the opinion, and serves as a preamble in which the Fifh Circuit set forth the general rules about awarding fees in class actions, before proceeding to address the specifc procedural defects that attended the allocation process in that case. 3 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bhour that it spent working to achieve the settlements, and likely a very generous multiple of that time. According to the end of year totals provided by Coughlin Stoia in its time records, Coughlin Stoia had the following total lodestar as of mid-2005 when it secured the bulk of the settlement monies: 2001 $2.4 million 2002 $15.4 million 2003 $12 million 2004 $19.2 million 2005 $10.4 million3 Total 2001-mid 2005 $59.4 million Under Fifth Circuit precedent, this is the only portion of the lodestar that may be subjected to a multiplier. All time incurred post-settlement, while certainly compensable, may not be enhanced by a risk multiplier, since there was no longer any risk to Class Counsel. Under their agreement with the Regents, they were entitled to a fee of up to $630 million (as an upper limit) just for the three 2005 bank settlements. This guaranteed that they could receive full compensation for all of the time they had devoted to the case, along with a reasonable multiplier, and still come in well under the cap established by the fee contract. Lead Counsel has requested that a 5.4 risk multiplier be applied to their lodestar. If the requested multiplier, which even Professor Coffee admits is beyond the high end of the range typically awarded by courts in securities settlements, is applied to that portion 3 This amount was calculated by dividing the 2005 total lodestar in half, assuming that it was evenly distributed over the year and that half of it had been incurred by June 2005. 4 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bof their lodestar that was incurred when risk still attached to the case (i. e., pre-settlement), the resulting fgure is $320 million. If $59.4 million of Coughlin Stoia's lodestar was incurred prior to summer of 2005, that means that the rest of the claimed lodestar, or almost $50 million, was incurred after the settlements. This time is not entitled to any risk multiplier. Furthermore, most of the post-2005 time was not spent seeking approval of the settlements, but instead was spent pursuing non-settling defendants, and attempting to infuence the outcome of a separate case that was thought to have resjudicata potential for what was lef of this case. This is where the Fifh Circuit lodestar methodology and the method endorsed by Lead Counsel diverge most signifcantly. For purposes of cross-checking the parties' negotiated fee, it is perhaps reasonable to count every hour that Lead Counsel spent pursuing any and every defendant in this case, and even hours spent trying to influence the outcome of other cases. The Regents hired Lead Counsel to pursue each of those defendants, and presumably it would be willing to give Lead Counsel credit for all of the hours worked, even those spent on unsuccessful cases and strategies. For purposes of awarding a fee under Fifth Circuit caselaw, however, the lodestar must be limited to the hours spent obtaining the settlements that serve as the predicate for the fee request. "The lodestar is then computed by multiplying the number of hours reasonably expended..." High Sulfur, 517 F.3d at 228 (emphasis added). "Reasonably expended" means hours that produced or led to the settlements that underlie the fee request, and excludes hours that were not necessary to produce the recovery. Postsettlement hours spent pursuing non-settling defendants are by defnition not reasonably expended. 5 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bWhile it may be reasonable to count all of the hours spent pre-settlement, regardless of which defendant they specifcally relate to, once the bulk of the settlement was achieved in 2005, the majority of Lead Counsel's time was spent, by defnition, on unsuccessful cases against non-settling defendants. The class members may not be charged for this time against their recoveries from the settling defendants, since none of that time was necessary to the achievement of the settlement. While the Objectors did not have suffcient time in the two weeks provided to comb through all of the time records in order to determine how much of the postsettlement time was directed to unrelated proceedings, the portion is certainly substantial. As an example, this excerpt from Lead Counsel Fee Brief at p. 40 gives a sense of the scale of the effort directed at a completely separate case with virtually no relationship to the settlements at hand: [T]he Firm directed a massive effort in developing a major amicus curiae effort in support of the plaintiffs' fraudulent scheme-conduct position in the Stoneridge case... And the Firm orchestrated a national effort to persuade the SEC to recommend to the Solicitor General that the SEC appear in the Supreme Court as amicus curiae in support of fraudulent scheme/conduct liability. This involved sophisticated efforts directed at legislators and regulators in Washington, DC, combined with a major public relations strategy, including press conferences with victims of defendants' misconduct in Washington, DC and Houston. As a result of Lead Counsel's educational efforts, several national labor leaders and major newspapers, including the New York Times and Los Angeles Times, and writers, like Ben Stein, spoke out and wrote in favor of the SEC siding with investors. None of this is compensable time against this settlement. Perhaps one day it will all be justifed by some future settlement against a holdout defendant. The preceding description certainly sounds as if a great deal of Lead Counsel's post-summer 2005 lodestar was spent on these extraneous matters, and perhaps as much as $30 million of the time they are now claiming as lodestar in the present fee application. 6 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bCertainly, Lead Counsel should be compensated for every hour worked postsettlement on settlement-related tasks, such as settlement approval proceedings, the plan of allocation and claims administration.4 But Lead Counsel should receive no multiplier on that time, because Lead Counsel was guaranteed full compensation for every hour worked once $6.6 billion was on the table (or in escrow). Lead Counsel knew that it would receive a fair portion of those funds. The only thing in question was what its effective multiplier would be. In order to comply with Fifh Circuit precedent, this Court must carefully review all of Class Counsel's post-summer 2005 time records, in order to segregate out time spent pursuing litigation against non-settling defendants, or the political strategy to influence the outcome of Stoneridge. That time will appropriately serve as the basis for a fee request and award in the event of a settlement against one of the remaining defendants. It cannot be appropriately charged to the class against the settlements that have already been achieved, because it had nothing to do with those settlements. It did not preserve the settlements already on the table. Rather, it sought additional settlement monies from different parties. Applying the very generous multiplier of 5.4 to all pre-settlement time (regardless of defendant) yields a fee of $320 million.5 Assuming that one-half of all post-settlement 4 Of course, time spent pursuing a fee is neither compensable nor includable in a lodestar calculation. 5 Some of the time claimed to be incurred pre-litigation will undoubtedly be excluded once this Court performs the mandatory detailed review of the time records. For example, Jonathan Cuneo of Cuneo Gilbert & LaDuca has 12 straight entries of exactly 6.0 hours each beginning on 12/21/01 and ending on 1/1/02 for "monitoring Congressional reports and proceedings and media reports." Congress was not in session during this entire time period, which included Christmas Eve, Christmas Day, New Year's Eve and New Year's Day. It is also unlikely that Mr. Cuneo worked exactly 6 hours on each of 12 consecutive days. While the aforementioned suspect billing only amounts to 72 hours and $42,000, it may only be the tip of the iceberg, as undersigned counsel identifed it during a very cursory review. During this Court's more extensive review, there will undoubtedly be more such questionable items. 7 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6btime was related to the settlement-approval and claims administration process, and awarding that time without any multiplier, would result in an additional award of $30 million, for a total fee of $350 million. That is the largest reasonable fee that may be awarded under existing Fifh Circuit fee jurisprudence, which has not been displaced by the PSLRA, according to the most recent case on fees from the Fifh Circuit, as well as several federal district courts. The largest fee that may be awarded under Lead Plaintiff's fee contract is $695 million. This is an enormous difference, and therefore this Court must resolve the material and fundamental issue of whether the PSLRA trumps established Fifh Circuit fee jurisprudence. 8 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bCONCLUSION WHEREFORE, Class members and objectors Bishop and Wilkens pray that this Court award a fee to Class Counsel pursuant to established Fifh Circuit fee jurisprudence, most recently affrmed in In re: High Sulfur Content Gasoline Prods. Liab. Litig., 517 F.3d 220 (5th Cir. 2008), and treat the 9.522% contractual fee as an upper limit only. Objectors Bishop and Wilkens pray that this Court apply a risk multiplier only to reasonable pre-settlement lodestar incurred prior to June 2005, award Class Counsel unenhanced compensation for post-settlement lodestar related only to the present settlements, and award no compensation related to lodestar incurred with respect to claims against non-settling defendants or related to public relations campaigns. Objectors pray that, consistent with the foregoing, this Court award Class Counsel attorney's fees of no more than $350 million. Respectfully submitted, George S. Bishop, Jill R. Bishop, Lon Wilkens and Betty Wilkens, By their attorneys, J. PeAfz, Esq. Class Action Fairness Group 2 Clock Tower Place, Suite 260G Maynard, MA 01754 Phone: (978) 461-1548 Fax: (707) 276-2925 C l as axn'a? e arthli nk. net J. Scott Kessinger, Esq. 7304 Michigan Ave. St. Louis, MO 63111 (314) 369-5115 Fax: (314) 754-8370 skess'&i.charter.net 9 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6bJonathan E. Fortman, Esq. 910 S. Florissant Road St. Louis, MO 63135 (314) 522-2312 Fax: (314) 524-1519 fortmanlaw( ,sbcglobal. net CERTIFICATE OF SERVICE The undersigned hereby certifes that on May 12, 2008 the foregoing document was served by first-class United States mail upon the following counsel: Patrick J. Coughlin Keith F. Park Helen J. Hodges COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 655 West Broadway, Suite 1900 San Diego, CA 92101 0-7 10 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=83b2dfb1-fe8f-4c4e-a21f-f28be7beeb6b

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